Thursday, March 05, 2009

Bailouts and the Bubble Bloggers

From the Weekly Standard:

There seems to be real bitterness about the idea of forcing people to subsidize the imprudent housing choices of their neighbors. That bitterness is on display on other websites, such as, which urges readers not to get stuck "paying for other people's greed & ignorance" and encourages them to lobby their congressmen.

Much of the opposition to the bailout, however, comes from people who are only tangentially interested in the politics of the matter. Beginning in 2005, hundreds of websites and blogs sprouted up warning about the housing bubble. At the time, these people were often viewed as doomsayers or cranks. Thoroughly vindicated, many of their sites are now de facto rallying points against Obama's plan, purely on grounds of economic prudence.

The blog FlippersInTrouble, for instance, gives exhaustive data on the losses being racked up by speculators in Sacramento, which won't help build sympathy for the beneficiaries of the bailout., a site which began by looking at economic aspects of the bubble in 2006, is now saying, "What the market needs is more foreclosures." There is no obvious political pattern to the bubble bloggers. Some are freemarketeers. Others, such as those who run, are Democrats who see the bubble as one more failure of the Bush administration. Yet nearly all of the bubble sites, left, right, and center, are now lined up against the bailout.


Diggin Deeper said...

There's no consensus because of the complexity of the problem.

Blame serves no purpose at this point. It's counterproductive and not solution's a clever a way to carve out an escape route if all bailout efforts fail.

The new administration is too new to pass judgement. They deserve enough time to show the way. That said, 9000 earmarked spending projects in the new $400B+ supplemental spending bill doesn't look like much has really changed but again, it's too early to pass judgement. Really doubt the American public will be extending any long honeymoons under current circumstances.

Let's face it. We're in some serious trouble and it will take vision, unblurred by useless personal and political agendas, to navigate our way through this.

Washington today is doing what Washington has done since the Civil War. To blame one administration, without considering the entire history of of how our various leaderships have dealt with problems in the past, is short sighted, politically motivated, and truly lacking an American history lesson.

As a country we're creating debt to pay debt for the insolvency and indiscretion of others. Harry Truman's famous line "The buck stops here!" would be preferred rather than the "pass the buck" policies we appear to headed toward.

rant off...

Buying Time said...

I dunno. Given the choice, I would much rather bail out homeowners who behaved responsibly (put money down, no HELOC's etc.), than Merrill' $10 million dollar executives and the rest of the banking industry, the auto industry, the insurance industry...the list goes on. It seems rather sick and twisted that this country would rather let people fail, as opposed to companies.

Husmanen said...

My observation is that the general tide from bubble bloggers are against the portion of the stimulus package that bails out homeowners that got in over their heads. Some issues/discussion points not supporting the bailout portion include:

* supporting higher than equilibrium prices, somehow this is good
* non-market fundamentals, ie will not stop prices from falling
* will not reduce losses for banks, eg plenty of examples here
* moral hazard
* silly logic, ie continue to own a home and a debt that far exceeds the market value for the foreseeable future

The other portions of the package, of which there are many, are up for grabs and the points of view are all over the board - typically following party lines.

anon1137 said...

Lander, would you say that you were more of the doomsayer type of blogger or more of the crank type?

patient renter said...

Ignorance knows no bounds.

people who are only tangentially interested in the politics of the matter

I'd say it's a bit more than tangential. It's my money being used, after all.

purely on grounds of economic prudence

Speak for yourself. Prudence is the least of my concerns. Being forced against my will to subsidize the bad decisions of others is more an issue of personal liberty than prudence.

"Freedom to make bad decisions is inherent in the freedom to make good ones. If we are only free to make good decisions, we are not really free."

patient renter said...

It seems rather sick and twisted that this country would rather let people fail, as opposed to companies

I'd rather let everyone fail. Failure means healing.

I think it's more sick and twisted to perpetuate debt slavery than it is to release someone from a liability that is choking them to death. The fact that some banks are refusing to foreclose on houses indicates that foreclosure is in the best interest of the homeowner, not the bank.

Diggin Deeper said...

It becomes a moral issue when having to differentiate between a homeowner that got on the wrong side of the market, and the bank VP who financially engineered that mortgage only to find themselves on the wrong side of the market as well. Both would have been heros under a different scenario.

The sad part is that the homeowner and the bank VP are basically joined at the hip... The bank leveraged the homeowner's $200K mortgage into $2-4 Mil worth of AAA rated paper. Little did the bank know the homeowner took an opportunity book his profits in form of a higher note. The market broke down, the homeowner defaults and his default results in a $2-4 Mil loss elsewhere in the system. You could point the finger both ways. Quite simply the entire moral fabric in this country was reduced to greed.

Think about it...for EVERY $200K foreclosure that hits the books, there is a potential of $ millions that could fail or have failed already. And Washington wonders why banks won't loan their Tarp and Talp money? Maybe they don't have any...

Now we have approximately 8 million mortgages that are teetering on default? If those mortgage average $200K and value out at $1.6 Trillion. So if they do go under, and the same financial engineering was used a simple 10 times leverage is $16 Trillion at risk.

So its hard to really get behind a witch hunt that will produce so little other than a lynch mob victory...and lawyers with stuffed pockets.

Cow_tipping said...

Yes preventing foreclosures and averting house price free falls only server to anger and alienate any one that wants a house. It makes move up buyers wait, because they know they can take a 30% haircut on their current house and move to a 2 X house and even a 20% savings there outweighs their loss. Then there is renters who were waiting for the amrket to come to them, and you are diverting it. They wont buy till the market comes to them.
I am category 2, I am move up, and I will buy the day the meddling stops and the house I buy is at its cheapest, and I will sell my house at the bottom too right before I buy. Its worth losing 100K on a house if I can save 150K.
Not every home owner wants high house prices.
However every realt-hole/mortgage broke-r wants high house prices.

Cow_tipping said...

Not to mention someone buying the house for 200K prevented me from buying it in the first place for 150.

Jacob said...

I am in the category or renting and waiting. And I too don't plan to buy until all the meddling stops.

The government can play games with the market but guess what, I just won't play. So that is one less house that can be sold right now. Times that by however many millions of renters there are that are waiting.

Not to mention that even if we stopped all foreclosures today and there was never another foreclosure, the banks already have a 5 year surplus of homes. We still have this huge excess of houses that need to be sold before the market will stabilize and the way to move those houses is with lower prices.

Keep the prices high and you just have on to your inventory forever.

Giacomo said...

There's no way to bail out "responsible" distressed homeowners without rewarding a lot of irresponsible ones, and without insulting the most prudent.

There's no way to "punish" companies without hurting people (their employees and investors).

The equitable solution is to let people who can't afford their houses lose them, and to let badly-run companies fail on their own. Let's save our tax money for the rebuilding, not blow it on futile rescue plans.

Max said...

I can color this up a little bit. Had a nice chat with Jonathan Last; apparently both the Republicans and Democrats are trying to define and claim the debate in the hopes of gaining political support for their policies. There will be huge efforts to reach out to the "grass roots" bloggers within the next year, since we're perceived as being at the vanguard.

Frank Jewett said...

The bailout won't restore price stability because prices are based on the ability to pay, not on the willingness to pay. During the bubble, lenders ignored the ability to pay. Does anyone really want to go back to that system?

Prices need to correct until we reach an affordable equilibrium. Anything that stands in the way of that process prolongs the agony of a slow real estate market and the deterioration of mortgage backed securities. It's a morphine drip of doom for banks and individuals.

Government can't bear to be seen as "doing nothing", so they fumble about with rumors of schemes and actual schemes to appear properly concerned. The best thing they could do is outlaw exotic financing and start offering home loans from the Treasury at a permanently fixed rate. Why not subsidize home buyers instead of subsidizing banks?

The Treasury should offer 4% loans on real property, one per SSN. That would be fair to everyone as responsible owners could also take advantage of lower rates without having to game the system.

Deflationary Jane said...

"The best thing they could do is outlaw exotic financing and start offering home loans from the Treasury at a permanently fixed rate. Why not subsidize home buyers instead of subsidizing banks?"

That is my hope as well. The banks are still getting 0% or darn close rates from the Fed yet setting 5% rates for purchases.

I think this whole thing falls under the "if you want something done right, do it yourself" rule.
I hope our government is listening and we don't have to get to the pitchforks and torches level before they get with the program, so to speak.

patient renter said...

The treasury doesn't have an unlimited supply of money though, at least not without help from the Fed - and being that the Fed = banks, it's not likely that the Fed will help the treasury undercut bank lending.

Giacomo said...

""The best thing they could do is outlaw exotic financing and start offering home loans from the Treasury at a permanently fixed rate."

Hmmm, with government-quality oversight, ala Freddie and Fannie?

patient renter said...

Had a nice chat with Jonathan Last

If you talk to him again, tell him to go easy on the straw-man next time.

Diggin Deeper said...

"The Treasury should offer 4% loans on real property, one per SSN."

I can't see where the government can acheive a low interest rate environment when they've become both lender and borrower of last resort. Any fixed price or interest rate controls imposed by the Fed would be temporary at best. The only way you can be both borrower and lender is to generate/print more money.

Anyone notice Hilliary Clinton asking China to buy more of our bonds last week? At first I thought it was odd, but after reviewing some treasury data on current foreign investment (ie lending) in US treasuries, it became clear someone in Washington is beginning to identify just how serious this problem has become.

Being able to print money at will, is a dangerous game that leads to unintended consequences, something Washington's getting pretty good at.

You might get a great rate on interest rates only to be met with serious devaluing of the purchasing power of the dollar.

anon1137 said...

PR: the Red Pill Journal? I don't think you've mentioned your blog here before, have you? I assume that's a reference to The Matrix.

richardtrade said...

There are different types of people to be bailed out. I think the no money down buyers, should not be bailed out or the equity refinance people that used their home equity should not be bailed out. However, the family that bought a house for $1,000,000 put 25% down and now it is worth $400,000 go jammed. The government, starting with Bill Clinton forced Fannie and Freddie to open up credit to the unworthy. Barney Frank also, then they repealed the law for the banks holding reserves in 2004 so they leveraged in many cases by 40 to 1. The guy who just did every thing right and got caught up in the wind should sue the government for the irresponsibility that cause the whole problem.

norcaljeff said...

Real Estate is much too big and complicated for some bloggers to bring it to its knees. It just doesn't work that way.

It makes me rethink any and all investments though. Even if you're a good stock picker and bought a home fairly valued, put 20% down and made your payments, it doesn't help you financially because a bunch of corrupt bankers and morons getting loans they couldn't afford could take down an entire global economy. Now I know why Hedge Funds only allow certain people to get in.